Qualcomm’s Apple Settlement Doesn’t End Risk to Its Business Model

(Bloomberg Opinion) -- Remember this for the next protracted, hyperbolic and ugly spat between giant companies: It’s never about the principle. It’s always about the money.

As chronicled relentlessly, Apple Inc. sued Qualcomm Inc. two years ago over what it said was a rigged business model. Qualcomm makes chips that are essential for connecting wireless devices including smartphones to the internet, but a big chunk of Qualcomm’s profits come from licensing its patented technology to device makers.

Apple complained loudly that Qualcomm used its power to overcharge Apple for royalty fees. There were wars of words and more words about Qualcomm being greedy cheaters, or Apple being greedy liars. The two companies marched in and out of various offices of government authorities and courts — including a closely watched jury trial that was starting this week. 

In an utterly predictable outcome, Qualcomm and Apple reached a settlement in their legal fight on Tuesday. The litany of litigation between the companies will end, and Apple will make a payment of undisclosed size to Qualcomm. The two sides also reached a licensing agreement that runs for six years, with possible extensions, plus a multiyear agreement for Qualcomm to supply chips to Apple.

For Qualcomm investors, this was a relief. Apple — or rather the companies that make Apple products — had stopped paying Qualcomm during the legal dispute, and news of the settlement sent Qualcomm shares soaring. They were up as much as 23 percent in late trading to $70.45. Qualcomm’s stock market value remains lower than it was before the Apple lawsuit in early 2017. Apple shares were relatively flat. 

The question is what happens now to Qualcomm and to its controversial business model.

Apple has not been using Qualcomm chips in its latest iPhones. Given the nature of the settlement, it appears that Apple will resume using them in at least some products. If that happens, it’s a sign that Apple needs Qualcomm, which remains a leader in wireless technology including for the next-generation wireless standard known as 5G. 

Risks remain for Qualcomm. The Federal Trade Commission, spurred by Apple’s complaints, has accused Qualcomm of antitrust violations in connection with its patent-licensing tactics. And as long as Qualcomm continues to make money by selling chips and licensing patents, it will continue to attract the ire of other customers and government authorities. With the help of the U.S. government, Qualcomm managed to ward off a hostile takeover attempted by Broadcom Inc. last year, and Broadcom vaguely promised to change Qualcomm’s controversial business model. Qualcomm shareholders were so annoyed about how the company handled the attempted takeover that they held a protest vote against its board members.

Apple most likely got what it wanted all along — a price break —  and won’t be stirring up trouble about Qualcomm’s business model any longer. That controversy has not ended, however, just because Apple removed itself from the fracas. It remains unclear whether Qualcomm’s business model can survive intact.

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.

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